What will an AVoD golden age mean?

By Nha-Uyen Chau 22-09-2022

How a golden age of AVoD and FAST could change the game for sales houses.

We are witnessing the next iteration of the media industry and possibly the start of a consolidation period.

Most of us were probably shocked by news of the merger between Warner Bros and Discovery, but perhaps many were not surprised. With ballooning budgets for content led by tech companies – the ‘darlings’ of Wall Street – legacy media brands have faced stiff competition for eyeballs and money. But how sustainable are these budgets, now heading north of US$20bn per year?

The SVoD model is no longer the disrupter, or an enviable model, as macro-economics plays a decisive role in household discretionary spending. Cutting the cord on your sub stacks will probably continue as long as inflation and war continues.

So where does this leave us, and where are the opportunities?

This iteration will be AVoD and FAST. What was once old is now new again, but different. Yes, ad revenues are back in the picture but on a grander scale, as media buyers and agencies have so much more to choose from. The big four streamers will now all have an ad tier by 2023. Thrown into this is the seemingly endless supply of FAST channels; everyone is launching one! The competition now is for advertiser bucks, not just subscribers.

With the increase in supply of FAST channels, the demand for content will continue. However, content will be harder to acquire unless channels are willing to offer a licence fee. As the barriers for entry into the FAST sector are relatively low, any company with volume can technically launch its own channel. Revenue share deals won’t fly in a lot of cases. Factual content is one of the best genres to launch a channel, sub-genres such as wildlife, travel, documentaries, paranormal and true crime present a great way to find your niche and try to own it. But you need volume to sustain and grow any channel.

The increase in demand will not necessarily lead to more money for productions. We’ll see a higher concentration of budgets for premium content, especially celebrity-driven and content that creates buzz. Raising finance for projects will continue to be harder and both producers and distributors will need to work harder and expect longer financing cycles and bring on board more partners.

2023 will be the start of the golden age of AVoD/FAST as the rest of world (outside the US) sees the roll-out of more platforms offering many, many channels. Content and especially volume will be the key drivers of success. This growth will mean smaller companies being seen off by larger players and a few more acquisitions and mergers are likely as this is the fastest path to growth.

On the platform side, AVoD and SVoD will start to look more like cable. Discovery will be a problem – even if you have a lot of content, how will users find it? Bundling packages is already here with AVoD and SVoD tiers – will it be possible to bundle AVoD Netflix with SVoD Disney? Or a cheaper AVoD bundle all together? This may be more likely than we’ve ever imagined, and perhaps through a telco.

I wonder whether another one or two mergers are on the horizon as the streaming wars becomes a war of attrition. Will Roku, which is also a manufacturer of connected TV, be acquired or merge with one of the big four? Maybe Samsung or TCL? Time will tell.